Take a Full Look at Robert Half

by Peter Cohan | July 22, 2011 12:45 pm

Second-quarter profit at temporary employee services firm Robert Half (NYSE:RHI[1]) more than tripled and the company’s financial report beat Wall Street’s predictions in many categories. With its stock shooting up more than 15% on the news, is now a good time to buy Robert Half’s shares, or have investors missed their chance?

Here are four reasons to consider this stock:

Great earnings reports. Robert Half has been able to surpass analyst’s expectations without fail and has done so in all of its last 5[2] earnings reports. In its most recent report, the company Rob benefited from growth in its technology and finance & accounting units, with strong IT spending across all business sizes during the quarter. Its finance & accounting unit saw demand for consulting, as well as high turnover. And Robert Half’s rates rose 5.6% over the year.

Good dividends. Robert Half pays dividends of 56 cents a share for the year, offering a yield of 2.2%.

Relatively cheap. Robert Half’s price-to-earnings-to-growth ratio of 0.7 (where a PEG of 1.0 is considered fairly priced) means its P/E is low relative to its rapid earnings growth. Robert Half has a P/E of 40.2[3] and its profit is expected to grow 54.1% in 2012[4].

Out-earning its cost of capital. Robert Half is earning more than its cost of capital – and it’s improving. It produced positive EVA Momentum, which measures the change in “economic value added” (essentially, profit after deducting capital costs) divided by sales. In the first half 2011, Robert Half’s EVA momentum was 3%, based on first six months’ 2010 annualized revenue of $3 billion, and EVA that rose from negative $50 million annualizing the first six months of 2010 to $50 million annualizing the first six months of 2011, using an 11% weighted average cost of capital.

One big negative is Robert Half’s declining sales, profits and cash. Its revenue fell at an average rate of 1% over the last five years and its net income has plunged at a 23% annual rate over that period. It has no debt but its cash has declined at an 8.4% annual rate from $447 million (2009) to $315 million (2010).

The last five years have been rough for Robert Half but it appears to have turned the corner. At its current valuation, the opportunity cost of avoiding this stock could be significant.